Embedded Banking Is The Next Evolution In The Future Of Fintech
There are Apple Payments Accounts, Shopify User Accounts, Amazon Loans. More and more non-bank businesses are expanding their businesses into banking services to improve embedded banking experience and exploit sources of revenue well. By integrating original financial services into neobanks, as in the case of BaaS accounting firm or the market called "embedded banking".
We all expect this banking trend to continue to expand, adopt new technology, use a growing business and distribution model as well as growing customer expectations that have created the foundation to change the user's previous mindset. At this point, the main functions of finance are transferred.
Banking-as-a-service is an essential element of embedded banking
Banking-as-a-service (BaaS) is a service that backs up and restores data in a cloud computing model.
First, you have to realize that the BaaS service providers build the technology foundation of the new trend - "embedded banking". These vendors provide a technological and regulatory infrastructure that allows third parties to operate the banking products system attaching their own brand name on the “BaaS backend” through a unique API system. Therefore, third parties can focus entirely on developing their own brands, suggesting information, finding their own customer experiences. The BaaS infrastructure also connects directly to accounts and cards and is used for payments, remittance or loans, safety compliance-related services such as customer identity or anti-money laundering checks. Many BaaS providers build platforms on terms that are either licensed or approved by partner banks, such as SolarisBank.
It should be noted that modern BaaS service providers, which do not follow the old model of traditional Whitelabel banking services, provide customers a friendly and smart experience. For this reason, they naturally become the top choice for modern technology vendors or fintech challengers.
Choosing BaaS instead of the out of date technology on Twitter is the right decision based on the collapse of WireCard.
Customers expect a lot from the services at embedded banking
In the digital era, convenience is a prerequisite for every decision. Although customers are accustomed to the original speed of payment solutions in the applications they use every day, customers probably change their mind by using a faster and better app. Therefore, enterprises can apply technology to optimize the customer's transaction execution process. Supplementing banking functions such as lending, opening cards or accounts. Instead of spending time dealing with different providers, just using a banking account which can enable customers to access different banks’ various services.
To be honest, not all businesses can do this, the businesses are not only influenced by legal papers in the host country but also be in trouble with customers’ psychology.
For instance, a small business has prepared accounting documents such as receivable amounts, payable amounts, payroll or regular transactions in its software. So why doesn't this business perform a lump-sum payment or a direct loan in the same program? Covering such loans will improve many workflows with accounting data to mitigate real-time. Furthermore, businesses can directly use the integrated credit card issued by the accounting service provider to optimize costs for each affair. Therefore, the cases of using embedded banking products are the best and most convenient solution.
Many proposals for "embedded banking" will be offered by innovative "vertical business" companies such as specialist BaaS, marketplaces, e-commerce, mobile, or telecom. Not only big-tech companies like Amazon and Uber but also local BaaS businesses can find themselves small-business such as FinFan, opportunities by seamlessly integrating banking services and features.
Developing embedded bank experience in 5 steps
People can perform financial transactions within the applications and platforms that their businesses trust thanks to the embedded banking experience. In simple words, clients of commercial banking can be facilitated new services and access the main products. That helps eliminate the root of friction affecting relationships of traditional commercial banking.
Embedded banking experience brings extensive benefits to the bank mostly, not only creating close-knit products but also keep customers’ loyalty. Transactions are implemented through business applications not only facilitating banking executives urging their (net promoter) scores but also satisfying customers’ needs rapidly. Moreover, banks are allowed to leverage detailed usage data to upgrade current products and develop new ones.
Embedded banking products are the key to help banks make a breakthrough once financial institutions make the adoption of digital technology to keep up with clients’ increasing demands. Therefore, we have stated below 5 main aspects to concentrate on first for the giant banking who desire to become part of the early majority to enlarge the business and bring wonderful embedded banking experience:
- Know What ERP Systems Your Consumers Use:
Mention embedded banking, you have to be aware of the ERP system deeply. This is a model of providing banking services within an existing set of business tools consumers have. Banking customers can manage liquidity, reconcile payables and merge receivables from branded sections of the bank within Netsuite, Microsoft, Dynamics, Quickbooks or SAP through it.
- Know what market segment you’re aiming at and what bank products they use:
The important thing is to understand your customers and decide who your potential clients are; what bank services do the customers use most? what market segment and verticals will you target? Where do customers have not been served? Are there locations your products have not been used?
- Determine what you will do to aid consumer success:
Conventional banks created products for profitability, not to lessen customers’ problems. Therefore, customer - centrical is a relatively novel concept for the financial sector. Embedded banking is an innovative service, so bankers will need to switch their models comprehensively, i.e. requiring a deeper awareness of how their consumers can use their service in each circumstance.
- Determine whether you want to (and capable of) aid a novel channel internally or need to cooperate with a FinTech:
Subdividing and analyzing existing operational models is critical for embedded banking to decide if it is strong enough to bring the effort to this new channel. In contrast with traditional product development, to operate embedded banking needs to have a novel infrastructure and support models.
- Decide if your trust, onboarding and authorization models are ready.
Given infrastructure requirements, selecting the right technology partner is a critical part for banking executives to find out if their existing trust, onboarding and authorization models satisfy data privacy and security requirements. We comply with SOC 2 Type 2, are resilient, efficient and on hand.
There are also traditional considerations related to evolving a go-to-market strategy apart from those five core aspects. Those aspects included but not limited, are creating an obvious business model and business circumstance, a detailed plan for customers to succeed, make objectives into key business metrics.
In the context of advancing capabilities and enormous potential, it’s obvious that the definition of embedded banking is not strange for banks once they totally can provide their products. The forward-thinking strategic recommendations are created by the automated, contextual banking systems will not only lessen the tension of traditional banking but also open a new financial era. Thanks to machine learning and AI (artificial intelligence), embedded banking will robust from passive products into sophisticated platforms.
Why embedded banking is the next evolution in fintech
Fintech is a leader in urging business model innovation
Another compelling reason for “embedded banking” is additional sources of income. Venture capital firm A16Z makes predictions, by adding "embedded" services to existing services, technology companies can help increase revenue for users by up to 5 times compared to register independent software.
Therefore, more and more fintech companies are founded because they realize the strong development opportunities ahead. By leveraging fintech features, more revenue streams come from exchanges, loans, etc. Take advantage of existing close customer relationships, brand strength, and distribution potential to open up new revenue streams for fintech.
Future and action of embedded bankings
Previously, companies wishing to integrate financial services through Whitelabel's partners faced tight, rigorous operational coordination and internal technology flow systems. With the arrival of the Bank in the form of a service (BaaS), more and more businesses are investing strongly in technology, making the bank's infrastructure more solid (for users of financial services or fintech companies). The "veteran" BaaS providers such as Solaris Bank or Railsbank, who have focused much on facilitating businesses to use financial services as their core targets, "new bud companies", such as HUBUC, focus on smaller customers, neo-banking businesses in the European market.
Although embedded finance is still a new and nascent industry, we all hope it can be applied more into practice. This is a great opportunity for fintech, non-financial, SME startups to create more core values for their customers